Microsoft-Yahoo deal would be a blow to Google in Asia

By Mayumi Negishi and Sophie Taylor - Analysis

TOKYO/SHANGHAI (Reuters) - A successful Microsoft Corp (MSFT.O) bid for Yahoo Inc (YHOO.O) could slow the growth of their common rival, Google Inc (GOOG.O), in Asia, where the world's biggest search engine still lags local players.

For Microsoft, whose MSN portal has been struggling to gain share in Asia, the deal worth around $41 billion would open up opportunities to cooperate with top Chinese e-commerce firm Alibaba.com Ltd (1688.HK) and Japan's top search engine, Yahoo Japan (4689.T).

Yahoo and Microsoft are at a stand-off after Yahoo's board rejected Microsoft's unsolicited offer of $31 cash or shares, saying it undervalued the company.

If the deal goes through, Microsoft stands to gain a leg up over Google from cooperation with Alibaba's online software and Yahoo Japan's online customer base. Yahoo owns 39 percent of Alibaba.com's parent, and a third of Yahoo Japan.

"If I were Google, I would be looking for acquisitions or more tie-ups in Asia to help secure better market share," said Hiroshi Naya, analyst at Tokyo-based Ichiyoshi Research Institute.

In Japan, Google is outnumbered nearly three-to-two in users by Yahoo Japan, according to Nielsen Online, and it comes a distant second to Baidu.com Inc's (BIDU.O) near two-thirds share of the search market in China.

Analysts say the big "if" for a merged Microsoft-Yahoo hoping to keep Google from the No.1 spot will be whether Microsoft can learn from Yahoo and adapt to local markets with their language and cultural barriers, to expand the merged company in Asia.

YAHOO'S EDGE

"The main concern is whether or not Microsoft would respect Yahoo Japan's unique culture, or if it will muscle its way into what Yahoo Japan has achieved here," said an official at Japanese mobile phone operator Softbank Corp (9984.T), who asked to remain anonymous.

Softbank owns 41 percent of Yahoo Japan, a 3.9 percent stake in Yahoo Inc and a 33 percent stake in Alibaba Group.

Rivals agree even successful domestic brands need to be modified to work in other countries or regions, particularly in Asia where language and cultural barriers are more pronounced.

"Business models need to be changed, adapted to fit local needs," said Baidu Chief Executive Robin Li.

"The details matter, and they take time to iron out," he said on the sidelines of a conference to launch the search engine in Japan in January.

Thanks to their early entries, Yahoo Japan and Alibaba have already cultivated strong ties with local users.

Besides leveraging their dominance in Asian Web markets, Microsoft may also be able to link up with Alibaba on advertising and online trading with the Chinese company's large customer base, said Liu Bin, analyst at Beijing-based research firm BDA.